“Albert Einstein was quoted saying, “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn’t ... pays it.”

“Tax deferral makes this eighth wonder even more powerful when accumulating wealth. That’s why it still amazes me that as the tax deadline approaches, we have to scramble to be sure all of our clients are doing their IRA contributions for last year.

“If you have the cash and are not doing all your deductible contributions you are needlessly paying Uncle Sam taxes at your top tax rate (10 – over 44 percent on 401k and employer plans), rather than putting that money in your account. Even if you can’t deduct contributions, everyone that is less than 70.5 and earns income has a once a year opportunity to put the eighth wonder of the world to work by contributing to their IRA.

“Rather than scramble for the April 15 deadline, why not begin monthly contributions to your retirement accounts now and fully fund them each year by year end? Start early and be sure all your options to contribute to tax deductible and tax deferred accounts are on auto pilot.”

“Tax planning isn’t what it used to be. The full effect of the Patient Protection and Affordable Care Act of 2010, aka Obamacare, will be felt on 2013 tax returns.

“The new 3.8 percent Medicare surtax will in effect create 18.8 percent and 23.8 percent brackets for capital gains, in addition to the zero percent and 15 percent rates.

“Harvesting tax losses in the past has always been front and center as part of tax planning. With the new Medicare surtax, consideration should be given to taking gains in lower income years to reset your tax basis if you see yourself selling appreciated securities in the near future.

“The key for 2013 is to not just think of your 2013 income tax liability when you start tax planning, but look ahead a couple of years as well and create a plan to strategize taking both capital losses and capital gains.”

“For many of us, the mortgage tax deduction provides the single largest reduction in taxable income.

“With mortgage interest rates continuing to be very attractive, it makes sense to consider refinancing your mortgage, if you have not already done so.

“A mortgage refinance has the potential of reducing your payments, and improving your cash flow. It will also reduce reduce your mortgage tax deduction, and therefore increase your taxes due. Make sure to adjust your tax withholding so that you won’t owe taxes (and interest and penalties) as a result of refinancing.”

“Two basic steps that people of all ages and income levels can take to minimize their income tax liability are:

1. Take full advantage of all pre-tax employee benefits available to you through your employment, whether you work for a company or are self-employed. These include retirement savings plans as well as benefits such as health insurance, life and disability insurance, and flexible spending accounts.

2. Pay attention to the location of investment assets within your overall investment portfolio. Structure your portfolio so that your most tax inefficient investments are held within tax-deferred or tax-free accounts (401k or 403b, Traditional IRA, Roth IRA, etc.) and more tax-efficient investments are held in taxable accounts.

Tax-efficient investments generally consist of individual stocks, stock index funds and ETFs, and individual municipal bonds and municipal bond funds because they generate income that is taxed at lower preferential tax rates. Tax inefficient investments generally include taxable bonds and bond funds, high turnover actively managed stock funds, REITs, and various “alternative investments” because they typically generate ordinary income and/or short-term capital gains that are taxed at higher tax rates.

As always, consult with your tax and investment professionals to optimize the tax efficiency of your investment portfolio.”

While it’s fun to get a big refund because it feels like “found money,” there are better ways to save money than making an interest-free loan to the government. For example, consider setting up an automatic transfer from your checking account or paycheck to a savings or money market account.

Though rates currently remain low on interest bearing accounts, when they do go back up, you’ll be better positioned to earn interest on your savings. If you still do get a big refund, put it to good use instead of spending it all at once.

Consider paying down credit card debt, adding to cash reserves for a rainy day, adding toward a 2013 IRA, or putting into savings for a big ticket item like a new car or home renovation.”

“Consider tax efficient investing. First, use passively managed index funds. Index funds have low portfolio turnover which means they do not do a lot of buying and selling of securities.

This results in lower costs and fewer tax consequences. Second, consider the location of your investments.

Tax inefficient investments such as bonds generate dividends that are taxed as ordinary income. They should be placed in tax-deferred accounts like IRAs or 401ks. Tax efficient investments such as stocks generate qualified dividends and long-term capital gains that are taxed at a lower rate. They should be placed in your taxable accounts.

Third, do loss harvesting. Near the end of the year, look at the funds in your taxable accounts. If you have a fund that is at a loss sell it and either buy it back 31 days later or invest in a similar fund. The realized loss can offset your other gains. If you have more losses than gains you can apply up to $3,000 of your remaining losses against your income. Any residual losses can then be carried forward and used in future years.”

Determining which assets belong in which account, in other words—asset location can have a huge impact on your taxes both in 2013 and in future years. Below are a few guidelines of where to “locate” various investments, assuming that you have money in each of the following buckets:

•Retirement Accounts—IRA/401k – Tax ‘inefficient’ assets are ideal candidates to house in your qualified retirement plans. Taxable bond funds and mutual funds with a high turnover are examples of candidates for these accounts.

•Roth IRA/401(k) if eligible—Earnings in a Roth IRA are not only tax-deferred, but withdrawals are tax-free. Thus, it is often desirable for this bucket to grow as much as possible for as long as possible. If so, then the most aggressive investments you want included in your overall portfolio are best located in the Roths.